Historical Income Statement for MKH, Inc. Item 2019 $

Historical Income Statement for MKH, Inc.

Item

2019

$ millions

2020

$ millions

Revenue

Operating expenses

Depreciation

810

(600)

(80)

880

(640)

(90)

Operating Profit

 

Interest income

Interest expense

Loss on equity investment

130

 

5

(10)

0

150

 

5

(10)

(25)

Earnings before taxes

 

Taxes

125

 

(50)

120

 

(48)

Net Income

75

72

 Historical Balance Sheet for MKH, Inc.

Item

2019

$ millions

2020

$ millions

Cash

Marketable Securities

Inventory

5

155

250

10

107

300

Current Assets

 

Property, plant, and equipment

Equity investments at cost

410

 

400

100

417

 

500

75

 

 

 

Total Assets

910

992

 

 

 

Accounts payable

Current portion of long-term debt

 

200

20

210

20

Current liabilities

 

Long-term debt

Equity

Retained earnings

220

 

200

100

390

230

 

200

100

462

Total liabilities and shareholder equity

910

992

 

Required:

Assuming the marginal tax rate equals 40 percent, compute MKH’s EBITDA, NOPLAT, Invested Capital, and ROIC (for simplicity, use year-end invested capital). Is ROIC increasing or decreasing?

Decompose MKM’s ROIC and explain how each component of the decomposition leads to an integrated perspective of performance. Address whether operating margins or capital turnover is driving the drop in ROIC.

 

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